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What is outsourcing? Just as the acronym 'IT' embraces anything from the electronic display system on a Boeing 737 to a Blackberry, so the generic term 'outsourcing' is an ever-expanding suitcase of options and opportunities. It's a term that has moved into normal business nomenclature without any very distinct definition. Even the Penguin English Dictionary struggles: 'to obtain components, services etc from outside suppliers.' Insofar as there exists a consensus among the experts, there is agreement that the key to successful outsourcing lies in differentiating a company's 'core' operations from those that could be easily contracted out to a third party and be managed elsewhere with little or no strategic impact. Back in the mists of time, this meant punch cards and the Payroll. Later, it was the public sector that took the lead in outsourcing catering services and waving goodbye to the lovely ladies in their black and white uniforms who used to wheel the tea trolley along the corridors of Whitehall power. From there, we moved on to contracting out IT maintenance and management. When you don't know your HTML from your JavaScript, it makes absolute sense to hand the responsibility on to a company that does. Outsourcing could mean anything from contracting in Costa to run a coffee bar to selling off all of your corporately owned properties - as the Department of Work and Pensions and the Abbey have done - and creating a deal where you pay a rent to lease back the premises you need to run your business while the owner bears responsibility for maintenance and infrastructure. From landscaping to energy provision, waste management to transportation services, plumbing to painting, engineering to electronics, there is probably no business support function that cannot be successfully packaged out. The decision to outsource non-core functions can be very liberating for a company. Passing on the responsibility for problems previously perceived as irritating distractions that pulled people away from a business's main activity is profoundly attractive. If there's a burst pipe or the offices all need repainting, you phone your account executive or Helpdesk rather than the plumber or decorator. Someone else has to get it sorted and sorted quickly. Making it work is rather more subtle. Success or failure will make or break the outsource supplier, and getting it wrong could also cause irreparable damage to the client company. A few major crises like that and the concept of outsourcing could collapse faster than the technology bubble burst. Mutual trust is central. Bill Locke is Group Director of Strategy and Communications at Alfred McAlpine plc: "If there is a failure, it will probably be the result of an error in the approach. Outsourcing must avoid rigidity and be flexible about change in a company's needs. What is appropriate at one stage in the contract may not be so later on after the initial set-up period. The values and culture match between the client business and the outsourcing contract is crucial. We must be able to understand what is important to that client and be able to adapt and fit those demands into our approach. It is almost chameleon-like." McAlpine recognised that it was well placed to develop its offerings within the growing outsourcing marketplace. Already long established major players in the provision of a whole range of different functions from roadways to power, high pressure pipelines to domestic meters, water to traffic management, the company began to extend into providing an integrated, one-stop-shop service for clients. In the early 1980s, the City began responding warmly to this new business model. With limited capital investment, relatively low risk and the promise of long-term regular contractual revenues, outsourcing holds appeal for shareholders. "We were already the market leader in utilities services," points out Bill Locke, "and we had an enviable reputation on health and safety, integrity, honesty and customer care. We could see that providing a day-to-day service that our clients could rely on was crucial, but we wanted to do more than that. We wanted to excel." The capacity to install the infrastructure, to lay the pipes and build the roads, to pump water and maintain power systems, was all in place. What had to be developed was the centralised management of it all for each client. All would have distinct and separate requirements, not only in practical terms but in cultural and business ethos terms too. "Companies want more than cost reductions when they consider outsourcing," says Noel Clancy, who manages McAlpine's contract with the Nationwide Building Society. "Outsourcing has to be viewed as an enabler, allowing a company to focus in-house business resources and management on core functional areas." Achieving this combination of service level and customer care is fundamental. "It's all about understanding your customer's business," says Gordon Duffy, who manages the account with Electronic Data Services (EDS), an interesting example of an IT outsourcing company itself purchasing outsourced management services! "We must of course deliver on the key performance indicators, on the excellence of service, but it is much more than that. This is about what is important in your client's culture; their goals, objectives, values. You need to understand their priorities. "It's very clear, when we speak to potential new customers, that there needs to be an alignment of the cultures, a mutual understanding that is open and honest right across both the measurable elements and the more elusive ones." The run-up, or mobilisation period, before an outsourcing contract actually begins is when the personal relationship management is most significant. Gordon Duffy spent two weeks visiting EDS's 30 sites from Taunton to Aberdeen initially. Now there are 30 more sites in the portfolio. "The contract has been reset recently, adding 30 more sites and 90 staff. Assessing each site specifically is important and is part of getting to grips with your customer's business. It can be difficult, financially and operationally, but you have to be relentless and make absolutely sure you have examined everything." The EDS contract spans a wide range of functions from the maintenance of the building fabric to managing office functions such as reception, the switchboard and reprographics. It includes landscaping, catering, project work and all of the management services. It takes a Helpdesk with seven operators to manage and issue requests out to the appropriate department for actioning. Timescales, as set out in each client agreement, must be strictly adhered to. Monthly meetings are used to report back on service delivery and ensure client satisfaction. Client expectations can sometimes be unrealistic: "You may need to manage expectations to an extent," says Gordon Duffy. "Sometimes a client's perception is that it'll start on Day One and on Day Two everything will be just fantastic, but that's not real life." What Alfred McAlpine does deliver, and this is repeatedly and independently verified by its clients, is: "its own culture of passion and integrity, of openness and collaboration, a willingness to be flexible and to change and evolve alongside the client's needs and plans," as Noel Clancy puts it. In the marriage between outsourcer and outsourcing supplier there is a dynamic that must work, and which needs constant care and attention. That does not mean it is going to be 100 per cent problem-free, "but it means we tackle problems immediately. We don't just do routine customer satisfaction surveys. Instead, we provide a list of 10 questions every six months and our clients score us against them. We then act to make sure we close any gap between those crucial, client-specific questions and the service we are delivering," says Duffy. "As the client's business changes and develops, those criteria will change as well. What was important in January may not be so much so now, and we need to be able to react to those changes with flexibility and adaptability." A decade ago, no one in the UK had heard the term 'outsourcing.' Now it's normal business nomenclature. The world outsourcing market is estimated to be worth around 58 billion euros and the breadth of just what can be outsourced has gone from straightforward, self-contained functions such as the payroll to full property outsourcing deals. The potential for growth is vast and the opportunities to expand are substantial. The first major outsourcing of real estate in the UK private sector caused a stir. The Abbey decided to sell its 1,500 properties to Mapeley in a deal worth £457 million in October 2000. Abbey handed over its entire property portfolio of 603,900m2 to the Bermuda-based company with a range of structured leaseback deals from a year to 20 years long. Ernst & Young estimated at the time that the deal would save the Abbey around £200 million in its lifetime. Though the deal clearly put profits on Abbey's books, raising cash wasn't the driving reason for outsourcing. Rather, it was to match the portfolio to the business plans. Abbey might require fewer local branches but more customer-friendly ones. It would become more reliant on e-commerce and web activity. It probably wouldn't need to be saddled with 1,500 properties. The Abbey deal rapidly led on to other companies looking at various levels of outsourcing to streamline their core business operations and make for better management structures. If floodgates hadn't exactly opened, there were certainly new opportunities for companies able to provide the kind of range of outsourcing services being sought. While few operating companies could take on an entire real estate portfolio on the Mapeley scale, or like Land Securities Trillium with the BBC's White City estate, the servicing and facilities management (FM) arena was wide open. That Alfred McAlpine was able to spot the potential and act to meet a new market need is a testament to management intelligence and the characteristic willingness to respond to opportunities with purposeful innovation. BOX OUT The Nationwide Building Society Robert Cock, Operations Manager The outsourcing contract with Alfred McAlpine involves all of the engineering maintenance at the Nationwide's headquarters in Swindon. Here, Robert Cock, the Nationwide's Operations Manager, explains why McAlpine was chosen to fulfil the contract. "We had a fairly lengthy and well planned procurement process, once we had agreed the decision to go down this route. We short-listed three companies and chose McAlpine for a number of reasons. Broadly speaking, McAlpine's business aligned with ours better than any of the other candidates. They not only talk well about what they will do, but they actually deliver it as well. "We had experience of them. We knew they would take appropriate and necessary action as and when it was required. "During the interviews and pre-award stages, when we were making site visits and looking closely at management issues such as planning, motivation, innovation, dealing with staff, we found McAlpine showed a coherence right across all levels, from the shop floor to senior management. Their staff management, the interaction with clients, provision of information, keeping us fully informed, was all very well managed and handled. There is an enormous level of commitment required to mobilise a contract that achieves a reduction from 37 to a single one. McAlpine delivers on that. "Openness in these conditions can be tricky and the fact that we had an existing relationship with McAlpine helped. Our main HQ in Swindon has over 3,000 people and with outlying offices, another 1,500. "McAlpine has full responsibility for all the engineering maintenance, reactive and planned, the ongoing maintenance and upkeep of buildings and the responsibility for providing the quality of service that allows us to focus on our core activities and not on the minutiae of facilities management."
Article Source: http://www.content.onlypunjab.com
Maggie Stanfield is a highly experienced journalist with immense knowledge of business issues. She writes regularly for national and international publications including The Financial Times, the BBC and on business in the Middle East. See www.writtenwords.co.uk/
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